Markets
Why “normal” stock market returns are anything but
By Trevor Messenger 10 September 2026 4 min read
Key takeaways:
- Average stock market returns represent long-term historical outcomes rather than annual predictions.
- Double-digit, mid-year drawdowns are normal, even during years that finish significantly positive.
- Treating recent double-digit gains as the new normal distorts long-term planning and invites unnecessary risk.
When mapping out a long-term financial future, investors often anchor on the comforting baseline of an 8% average annual stock market return. While useful for determining reasonable assumptions for long-term projections, this multi-decade average is a mathematical output, not an annual promise. In reality, market returns almost never land on the "average" line in any given year.
Understanding just how abnormal the path to normal returns truly is forms the foundation for setting realistic expectations—a vital step toward achieving long-term investment success. A sharp downturn is no reason to panic, just as a runaway rally isn't a signal for reckless excitement; both are simply routine movements along the path to compounding wealth.
The myth of the "average" year
Despite the S&P 500’s multi-decade average price return sitting near 8%, actual calendar-year returns are wildly unpredictable. Tracking annual performance going back nearly a century to 1928 reveals a market that operates in wide swings rather than calm medians.
In fact, calendar years where the S&P 500 closes within an extended “normal” range of 6% to 10% are quite rare. Out of nearly 100 years of historical data, the index has landed in that average range only a small handful of times. Multi-decade averages are helpful mathematical outputs, but expecting a textbook average year in any given 12-month period is chasing a mirage.
Instead of steady, linear growth, historical performance bounces between two distinct states: strong expansion and sharp contraction.
Intra-year declines and emotional head fakes
To make navigating the market even more complicated, full-year calendar figures don't tell the whole story. That's because even during great years, markets almost never travel in a straight line either.
Historical data reveals a stark disconnect between where a year finishes and the rocky path taken to get there. Between 2000 and 2025, major stock indices like Canada’s S&P/TSX Composite and the US’s S&P 500 delivered positive calendar-year returns roughly 70% of the time. Yet, over that exact same timeframe, every single year experienced a significant intra-year decline—averaging between peak-to-trough drops of roughly -16% within the year.
|
Index (2000–2025) |
Positive calendar years (%) |
Average annual return |
Average intra-year decline |
|---|---|---|---|
| S&P/TSX Composite | 73% | +5.2% | -15.71% |
| S&P 500 | 69% | +8.2% | -16.05% |
Source: ATB Investment Management
Total return indexes are used to reflect price appreciation and dividends received (assuming immediate reinvestment). Performance is stated in local currency terms.
When a mid-year drop hits 10% to 20%, it can create a powerful psychological "head fake." Amplified by alarming headlines, the urge to react—whether by shifting to cash or abandoning your plan—can feel almost overwhelming.
Yet history reminds us that these unsettling pullbacks are simply the price of admission for long-term growth. In fact, this short-term uncertainty is the exact reason equities offer higher return potential over time—investors are rewarded for staying the uneven path.
The danger of treating high returns as the the new normal
While preparing for downside volatility is essential, there is another subtle trap long-term investors must navigate: recency bias during periods of extraordinary performance.
Following stretches of exceptional market growth, it is easy to anchor on double-digit annual gains as a new baseline. When portfolios compound at 15% or 20% year after year, expecting that pace to continue indefinitely distorts financial planning assumptions. Extrapolating peak returns into the future can lead to under-saving or taking on excess risk, leaving your plan vulnerable when performance inevitably reverts to historical medians.
Just as a single negative year is not a reason to abandon a strategy, an extraordinary run of gains is not a signal to rewrite long-term expectations. Maintaining a grounded view of historical averages ensures your financial plan remains resilient through every phase of the market cycle.
Managing our psychology
Navigating the market successfully requires emotional discipline and four core mindset shifts:
- Accept the variance: Achieving a long-term average return requires enduring a noisy mix of strong gains, sharp dips, and flat periods. Consider average returns in a given year as outliers.
- Look past the drops: Recognize that significant mid-year drops are completely normal and frequently occur in years that finish with strong positive returns.
- Maintain grounded expectations during bull runs: Resist the urge to extrapolate extraordinary, double-digit gains into permanent baseline expectations, as peak performance will inevitably revert toward historical averages.
- Avoid market timing: Attempting to side-step short-term declines often results in missing out on the sudden, explosive growth periods that make long-term averages possible in the first place.
Final thoughts
True wealth building is less about timing short-term market swings and more about maintaining perspective through every phase of the cycle. By stepping back from daily headlines and mid-year drops, the road to achieving your financial goals becomes significantly clearer. Lasting confidence rests on a structured plan engineered to navigate market turbulence—because expecting average long-term returns never means expecting average years along the way. When you accept that an uneven path is essential to growth, staying disciplined feels natural.
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